California continues to lead the trend away from non-competes with a new law that packs yet another punch against employers' use of these very common contractual restrictions on employee mobility.
Non-competes—also called restrictive covenants—typically prohibit an employee from taking employment with a rival firm once their current employment has ended. Their enforceability largely depends on their scope and the applicable state law.
In California, existing law already provides that, with few exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." And, existing law also prohibits employers from trying to skirt the ban by trying to using forum-selection and choice-of-law provisions against California residents who work in California.
The new law goes even further. It states that non-competes are void regardless of where and when they were signed. It prohibits employers from attempting to enforce unlawful non-competes even if the employment occurred outside California. And finally, the law makes it a civil violation for an employer to enter into a prohibited non-compete. Employees can bring private actions against employers who violate the laws against non-competes, and prevailing employees are entitled to attorney's fees.
The law was drafted by Orly Lobel, Warren Distinguished Professor of Law and Director of the Center for Employment and Labor Policy at the University of San Diego. Her research reveals that California employers still require employees to sign non-competes even when they are unenforceable under California law. Professor Lobel also found that non-competes continue to "stifle economic development, limit firms' ability to hire," "depress innovation and growth," and are "associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation."
Read our podcast about non-competes and other employment-related antitrust issues here.
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